A corporate budget creates a financial framework for a company to work within. A budget typically defines monthly expenditures, including operating overhead, inventory, payroll expenses and insurance. A budget also allocates set amounts of money to various departments in a company for discretionary use. The two types of budget approaches are top down, where management makes all decisions about how funds are allocated, and bottom up, where lower-level employees are consulted and have input in budgeting. A bottom up budget not only involves all departments in the budgeting process, but it encourages department managers to clearly identify and define anticipated projects and expenditures throughout a year.
Which Management Style Is Right for You: Top-Down or Bottom-Up Approach?
Ch. 7 Multiple Choice - Principles of Accounting, Volume 2: Managerial Accounting | OpenStax
These budgets will begin with upper level management establishing parameters under which the budget is to be prepared. Lower-level personnel have very little input in setting the overall goals of the organization as they are essentially reduced to doing the basic budget calculations consistent with directives. One disadvantage of the top-down approach is that lower-level managers may view the budget as a dictatorial standard. They lack ownership of the budget and as such, they will be reluctant to take responsibility for it. Further, such budgets can sometimes provide ethical challenges, as lower-level managers may find themselves put in a position of ever-reaching to attain unrealistic targets for their units. However, it can be argued that this top down approach may be the only approach to budgeting which is feasible if. In fact, the lowest level organisational units are asked to submit their estimates of expenditure for the next year.
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The Next Generation of Budgeting for Healthcare
Top-down budgeting is a crucial method of preparing a budget for an organization or a company. The top management then allocates the amounts for the individual departments, who use those numbers to prepare their own budget. Manager of the individual departments may give suggestions to the top management before the preparation of the budget.
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